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5 July, 2017
Precis: New Balance has won another victory when defending its IP rights in China. The Suzhou Intermediate People’s Court has fined five defendants for breaching an injunction against the manufacture and sale of shoes bearing the N letter design.
New Balance has won another victory when defending its IP rights in China. On April 24 2017, the Suzhou Intermediate People’s Court issued a penalty decision against five defendants in an IP dispute case brought by New Balance. In the decision, the court imposed a fine on the defendants for breaching an injunction issued in September 2016 against the manufacture and sale of shoes bearing the N letter design. The defendants’ brand is ‘New Boom’.
The injunction issued by the Suzhou court was based on the decision of an earlier court that the N letter design on sports shoes used by New Balance constitutes a unique decoration on a well-known commodity protected by the Anti-unfair Competition Law.
Earlier decision
On April 14 2017 the Hangzhou Railway Transportation Court decided in New Balance China v New Bunren Sports Wear Co Ltd that the defendants were liable to pay New Balance China Rmb3.3 million (approximately $434,800) in damages and reasonable costs for infringing use of the N letter design. In that case, New Balance China sued the defendants for their use of a confusingly similar N letter design on shoes. New Balance claimed that this infringed its unique decoration right applied on its ‘well-known commodity’ under the Anti-unfair Competition Law.
The defendants owned several previously registered marks incorporating the N letter design in different formats, including
New Balance’s N letter mark 
was filed for registration in 2007 and was finally granted registration by the Beijing High People’s Court on August 17 2016 after a lengthy opposition procedure.
In China, unregistered trademarks are rarely protected in trademark infringement cases, unless the plaintiff can show that the mark is well known in China, which requires an extraordinarily high level of proof that most brand owners struggle to meet. Therefore, unsurprisingly, New Balance’s trademark right in the N letter design could not be protected before August 17 2016, and New Balance China had to find a new approach to protect its rights to the N letter design ‒ namely, the unique decoration right to the N letter design conferred on well-known commodities. It was not the first time that New Balance or New Balance China had to take such an approach. New Balance’s unique decoration right to the N letter design has been granted protection in prior cases by the Hangzhou Intermediate People’s Court and the Shanghai Second Intermediate People’s Court.
In the present case, according to New Balance China, New Balance entered the China market as early as 1995, manufacturing and distributing sports shoes bearing the bold, capitalised letter N. At the beginning of 2004, New Balance started to advertise its sports shoes with the N letter design. Through ongoing promotion, New Balance branded shoes acquired a strong reputation among its target consumers in China. Further, the N letter design decoration is the most prominent and identifiable part of the shoes.
Given the above, the Hangzhou Railway Transportation Court held that the N letter design on the defendants’ products was different from their registered N letter design marks, but similar to New Balance’s N letter design on its shoes. As competitors in the same industry, the defendants changed the format of their registered marks and used the N letter design which was confusingly similar to the New Balance design and placed in the same position as on the New Balance shoes. The court held that this showed bad faith by the defendants, which were attempting to free ride on the fame of New Balance’s products. Accordingly, the court supported New Balance’s claim to its unique decoration right to the N letter design on well-known commodities before August 17 2016 and its trademark rights to the N letter design mark after August 17 2016.
Anti-unfair Competition Law
The above judgment provides direction for the protection of unregistered marks from the perspective of the Anti-unfair Competition Law. Under Article 5:
“business operators shall not adopt any of the following improper means to carry out market transactions or cause damage to competitors using, without authorization, the names, packaging or decoration unique to well-known goods or the names, packaging or decoration similar to those of well-known goods so that their goods are confused with the well-known goods of others, causing buyers to mistake them for the well-known goods of others.”
To successfully apply Article 5, the following conditions must be met:
- The goods are well known (within China);
- The names, packaging or decoration is unique to the relevant goods; and
- The use of the same or similar names, packaging or decoration is not authorised by the owner and will likely cause confusion among the relevant public as to the source of the goods.
The criteria for recognition of the well-known status of goods are similar to those for recognition of the well-known status of trademarks protected by the Trademark Law, which is almost always supported by extremely substantial evidence of ‘use’ in terms of sales and promotional activity.
The Anti-unfair Competition Law provides complementary protection for trademarks. However, if both the Trademark Law and the Anti-unfair Competition Law are applicable, the former shall prevail, given that it is a special law for trademark protection, whereas the latter is a general piece of legislation (following the ‘comparative concept’ in Chinese legal theory).
New Balance’s IP disputes concerning its Chinese marks
Since entering the Chinese market over 20 years ago, New Balance has been embroiled in various IP disputes. In its early days, it adopted the Chinese mark 纽巴伦 (Niu Ba Lun), which was later squatted by its China sole agent. It re-entered China in 2003 and adopted a new Chinese mark, 新百伦 (Xin Bai Lun) in 2006, which was then registered by a local natural person, Mr Zhou, who manufactured and sold shoes with the brand 新百伦 (Xin Bai Lun). Zhou obtained the mark 百伦 (Bai Lun), which was filed as early as 1994 and registered in 1996, through assignment from a third party in 2004. He also filed a new application for the mark 新百伦 (Xin Bai Lun) which, after an opposition lodged by New Balance, was granted registration in 2011. In local practice, the marks 百伦 (Bai Lun) and 新百伦 (Xin Bai Lun) are considered as similar marks. Despite unsuccessfully challenging the 新百伦 (Xin Bai Lun) mark held by Zhou, New Balance continued its use of the Chinese name 新百伦 (Xin Bai Lun) and was sued by Zhou for trademark infringement based on his prior trademark rights to 百伦 (Bai Lun) and 新百伦 (Xin Bai Lun). In the judgment of first instance, New Balance was ordered to pay damages of Rmb98 million (approximately $14.2 million) to Zhou, which was revised to Rmb5 million (approximately $724,638) in the judgment of second instance. The courts also held that New Balance had clearly shown bad faith through trademark infringement, as it was aware of the prior marks which could be deduced from its opposition against the prior 新百伦 (Xin Bai Lun) mark.
First-to-file principle
As can be seen above, one of the biggest issues for brand owners when entering and expanding into China is that China follows the first-to-file principle, which means that the filing date of a trademark will usually be determinative in deciding who will obtain the exclusive trademark right, regardless of the subjective status of the applicant or the use status of the mark (in the absence of extremely substantial and substantive use within mainland China).
Due to the first-to-file principle, trademark squatting has long been a problem for international brand owners seeking to capture market share or to manufacture in China, and many professional squatters make this their core business. These serial pirates squat on large numbers of third-party marks with a certain reputation in their home and other markets, aiming to make a profit by selling the marks or forcing the true brand owners to ‘cooperate’ with them, including appointing them as licensees in China. This has not escaped the notice of the trademark authorities or the Chinese courts. To help solve the problem, the Trademark Law ‒ effective from 2015 ‒ introduced a new provision that states: “except the application for the registration of trademark relating to its agent service, the trademark agency shall not apply for the registration of any trademarks.” However, in other scenarios, squatting is still a serious issue as a result of the low costs involved. With the exception of minor filing fees the squatters have little to lose ‒ even if the squatted marks are refused, successfully opposed, invalidated or cancelled. Also, some trademark squatters choose more oblique means to free ride on the reputation of other famous brands (eg, ‘New Boom’ and ‘New Bunren’ above). Some even turn to trade name (company name) and domain name squatting, to create dilution in the marketplace and force brand owners to acquire the relevant trade name or domain name from them – at a cost, of course.
Comment
For the Chinese public, the Chinese brand or trade name is likely to be the most easily referenced and remembered. Therefore, as a practical step, foreign brands should clear and file the Chinese mark that they will be adopting prior to launching in China. The lesson learnt from New Balance’s dispute over 新百伦 (Xin Bai Lun) also shows that brand owners should be prudent before adopting (and heavily promoting) any Chinese name. Although it is not feasible to do due diligence on everything, at the very minimum trademark availability searches should be conducted before adopting Chinese names so as to avoid being embroiled in costly and unproductive legal fights to win back rights secured by third parties under the first-to-file principle before the Chinese Trademark Office.
This article was first published in World Trademark Review.
Ai-Leen Lim, ACEO and Principal Counsel AWA Asia
ai-leen.lim@awapatent.com
